Thoughts on Trade, Investment and Energy Policy in the Western Hemisphere (and Beyond) by Justin S. Miller

Peru-Honduras FTA Enters into Force, Falls Short on Free Movement of People

The bilateral free trade agreement (FTA) between Peru and Honduras entered into force on January 1, 2017; the parties launched negotiations in November 2010, and signed the agreement in May 2015. While the bilateral FTA goes beyond the parties’ existing World Trade Organization (WTO) obligations, it reflects the shortcomings of most other modern trade agreements in that it allows for the largely unobstructed movement of goods, services and capital across borders, but not for the free movement of all labor classes, a key element to a truly free market.

A Boilerplate WTO-plus FTA

As with most modern trade agreements, the Peru-Honduras FTA is consistent with and builds upon signatories’ obligations under WTO Agreements. Upon entry into force, the bilateral FTA immediately eliminated the import duties Honduras levied on Peru-origin goods falling under approximately 81 percent of tariff lines, with all but a handful of the remaining tariffs lines to undergo gradual liberalization over periods of 5, 10 or 15 years, ostensibly corresponding to sensitive national industries spread across the agricultural and industrial sectors; similarly, Peru’s tariff schedule under this FTA contemplates 5-, 10- and 15-year liberalization periods, with few exempt categories the import duties for which will remain at most favored nation (MFN) levels.

In addition to goods market access, the FTA includes chapters on Rules of Origin (ROO) and Origin Procedures, Trade Facilitation and Customs Procedures, Cooperation and Mutual Assistant on Customs Matters, Sanitary and Phytosanitary Measures (SPS), Technical Barriers to Trade (TBT), Trade Defense, e.g., safeguards and antidumping and countervailing duties (AD/CVD), Intellectual Property Rights (IPR), Government Procurement, Competition Policy, Cross-border Trade in Services and Investment, Dispute Settlement, and Transparency. The Peru-Honduras FTA also includes a chapter on Temporary Entry of Business Persons, an area commonly covered under modern trade agreements, establishing rights and obligations in regard to the entry to and presence in the territory of one party of business visitors, traders, investors, intra-company transferees and so-called “professionals” of the other party.

A White Collar Bias

An oft-cited criticism of modern trade agreements is that, while they aggressively liberalize the free movement of goods, services and capital, they rarely provide for the free movement of all people; rather, these agreements usually establish rights and obligations exclusively with respect to the movement of the so-called “white-collared” or professional class, e.g., business visitors, traders, investors and intra-company transferees, leaving largely untouched the rules governing the free movement of unskilled or non-professional labor. Additionally, by simple virtue of the chapter’s title, the Peru-Honduras FTA asserts the “Temporary” nature of any provision relating to the movement of people, and the chapter’s text stresses the “need to […] protect the [parties’] domestic work force[s]”, reaffirming the right of parties to apply their respective immigration statutes, e.g., visa requirements, etc. In light of the foregoing, members of the non-professional or unskilled labor force find little to no direct benefit to them in most FTA’s Temporary Entry chapters, given that economic migrants usually seek permanent—or at least longer-term—residency with work privileges.

It would not be fair to point a finger only at Peru and Honduras for having fallen short on the free movement of all people under their bilateral FTA, particularly given the low number of non-professional Peruvians and Hondurans that would choose to move to and work in the territory of the other party. For example, the United States-Singapore FTA also falls short in this regard (see Chapter 11), and the Pacific Alliance, an agreement between Mexico, Colombia, Peru and Chile this blog has discussed in a previous entry, sought to liberalize the free movement of goods, services and capital, in addition to people, but as of yet has only achieved the removal of visa requirements for non-remunerated activities.

That the bilateral Peru-Honduras FTA does not allow for the free movement of all labor classes likely reflects the customary practice of employing a standardized WTO-plus FTA template, whereby countries negotiate at the margin of previous FTAs that rarely establish immigration benefits, much less for non-professional labor; however, it also reflects the politics of the moment in Peru, Honduras and many countries around the world in regard to immigration. In modern democracies, governments must sell the virtues of free trade to their constituencies by touting the positive impacts a trade agreement will have on industry, consumers and, of particular political importance, job creation; workers of voting age often take a zero-sum approach to immigration, viewing immigrants as competition instead of job creators, particularly in blue collar trades, a belief economists eschew but politicians seldom contest.

Even in the European Union (EU), within which EU citizens may move across borders, and reside and work in other EU or European Economic Area (EEA) countries, there is pushback against this free movement of people, as evidenced by the June 2016 vote in the United Kingdom for it to leave the European Union, in part attributable to misgivings among UK voters about the presence of foreign EU workers in the UK. Similar immigration-skeptic sentiment is observable in such other EU countries as France, the Netherlands and Germany, and skepticism toward immigration was a principal factor that catapulted Donald Trump to win the November 2016 US presidential elections.

Immigration: Good for Business among Other Things

There exist myriad reasons to liberalize immigration worldwide, not the least of which flow from humanitarian concerns (see: Syrian refugee crisis, unaccompanied Central American minors in US immigration detention centers, etc.). Immigrants contribute to the societies that receive them in many ways we cannot measure in purely economic terms, but even if we were to purely focus on bottom-line arguments, we could point to decades of data that prove that immigrant labor keeps industrial costs down and consumer prices low, and show that immigrants often start businesses that, in turn, create jobs; immigration is simply not a zero-sum game.

That the Peru-Honduras FTA does not provide for the free movement across borders of all labor classes for the purpose of performing remunerated activities alone is perhaps a minor issue, as few non-professional Peruvians and Hondurans would choose to move to and work in the territory of the other party. Nonetheless, it does serve as a golden example of global trade policy over the last several decades not viewing the free movement of all labor classes, both professional and not, as a source of economic value and/or a key step toward achieving a truly free market. The anti-immigrant rhetoric currently prevalent in US and European electoral politics suggest that this trend is unlikely to change course in the short term. Given this, might countries of the “Global South” take the lead in this regard in the years ahead?